A month has gone by since the last earnings report for Ansys (ANSS - Free Report) . Shares have lost about 5.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Ansys due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
ANSYS Earnings & Revenues Surpass Estimates in Q1
ANSYS delivered first-quarter 2019 non-GAAP earnings of $1.29 per share, surpassing the Zacks Consensus Estimate of $1.09. The figure also came ahead of management’s guided range of 98 cents to $1.11 per share. Earnings surged 8% on a year-over-year basis.
Non-GAAP revenues of almost $319.9 million comfortably outpaced the Zacks Consensus Estimate of $306 million. Further, the figure was higher than management’s guided range of $290 million to $310 million. Non-GAAP revenues increased 13% from the year-ago quarter, driven by double-digit growth across lease, maintenance and service revenues.
As of Mar 31, 2019, total deferred revenues and backlog came in at $672.6 million, an improvement of 13% on a year-over-year basis.
In the reported quarter, the company unveiled ANSYS Cloud, which combines high-performance computing (HPC) infrastructure and Microsoft Azure platform with ANSYS software.
The company also unveiled a Ph.D. program in partnership with Indian Institute of Technology Bombay to accelerate research across healthcare and conservation industries.
The company also acquired certain assets and liabilities of DfR Solutions. The acquisition is aimed at providing customers with designer-level toolkit to investigate for electronics failure at the nascent design stage.
Moreover, in the quarter under review, the company announced alliance with Ferrari Competizioni GT to make next-generation vehicle designs for advancement in the race track.
The company had also acquired Granta Design Limited (Granta Design) and Helic, Inc. (Helic) for a combined consideration of $261.5 million.
Segment Revenue Details
Software licenses revenues during the quarter came in at $123 million, up 11.8% year over year. While Lease licenses revenues grew 45%, primarily due to higher multi-year contracts. Perpetual revenues were down 8.9% on a year-over-year basis.
Maintenance and Service revenues came in at $194.1 million, up 12.3% year over year. Notably, individually, maintenance revenue grew 15% and services revenue grew 46% year over year.
Geographic Revenue Details
Region wise, Americas and Asia-Pacific revenues increased 41.8% and 13.1%, respectively, at constant currency. Meanwhile, EMEA revenues were down 6.9% on a year-over-year basis.
Americas reflected demand for ANSYS’s solutions. Robust investments in autonomous vehicles, electrification, smart, connected solutions and 5G acted as primary catalyst. Customers’ focus on utilizing simulation across repair, maintenance and other overhaul projects was a positive. Budgetary increase in allocation for defense spending across Europe and the United States favored growth in aerospace and defense domains.
EMEA revenues were down primarily owing to decline in Germany. The region's aerospace and defense experienced softness on account of lack of new aircraft programs. However, ANSYS is rebuilding sales organization and improving operational execution to enhance go-to-market strategy in the EMEA region.
Strong performance in China, Japan and South Korea related to 5G, artificial intelligence and semiconductor technologies was a positive in Asia-Pacific region. Robust investments in autonomous vehicles and electrification acted as catalyst.
Direct and indirect businesses contributed 71% and 29%, respectively, to quarterly revenues. ACV increased 3.3% (7% on a constant currency basis) from the year-ago quarter to $303.5 million.
Non-GAAP gross margin came in at approximately 91.1% during the quarter as compared with 89.8% reported in the year-ago quarter.
Non-GAAP operating margin contracted 210 bps on a year-over-year basis to 42.9% during the quarter.
Balance Sheet & Cash Flow
ANSYS exited the quarter with cash and short-term investments of $607.6 million (the United States comprised 66%) compared with $777.4 million (the United States comprised 79%) in the previous quarter. The company generated cash from operations of $151.6 million compared with $132.9 million in the previous quarter.
Further, the company repurchased 0.3 million shares during the reported quarter for approximately $179.42 per share. As of Mar 31, 2019, the company reported 3.6 million shares remaining in the share buyback program.
ANSYS expects non-GAAP earnings in the range of $1.18 per share to $1.30 per share for second-quarter 2019.
Non-GAAP revenues are anticipated in the range of $325 million to $345 million.
Management projects non-GAAP operating margin to be in the range of 39-41% for the second quarter.
For 2019, ANSYS updated outlook. The company now anticipates non-GAAP revenues of $1.430-$1.480 (previously $1.410-$1.470). Non-GAAP earnings are envisioned in the range of $5.75-$6.10 per share (previously $5.55-$6.00 per share).
ANSYS anticipates operating cash flow for fiscal 2019 to be in the range of $470-$510 million. Non-GAAP operating margin is expected to be in the range of 43-44%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.74% due to these changes.
At this time, Ansys has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ansys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.